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Pension withdrawals fall as savers remain cautious

Savers have refrained from raiding their pension pots and taking withdrawals at unsustainable levels, with HM Revenue and Customs seeing a 7 per cent drop in average withdrawal levels during the pandemic.

Data published by HMRC showed the average amount withdrawn per individual throughout July, August and September 2020 was £6,700, a 7 per cent decrease from the £7,200 seen during the same months in 2019.

A total £2.3bn was withdrawn from pensions flexibly in the third quarter of 2020, down from £2.8bn in the same period last year.

Since April 2016, average withdrawals have been falling steadily with peaks usually seen in April, May and June.

However, this trend has changed this year, which HMRC said could be linked to the impact of Covid-19.

The number of people accessing their pension increased by 6 per cent year-on-year to 347,000 , and by 2 per cent on the previous quarter.

Again, this went against normal trends as the number of savers making withdrawals normally peaks in Q2 as it coincides with the beginning of the new tax year.

The total value of flexible withdrawals from pensions since pension freedoms were introduced in 2015 has now exceeded £37bn.

Stephen Lowe, group communications director at Just Group, said it was positive that savers have stayed cautious and not raided their pots in response to the pandemic.

Mr Lowe said: “It’s positive that people do not appear to have panicked and started emptying their retirement funds in great numbers. But these figures must be treated very cautiously because they don’t cover people who are just accessing tax-free cash or who are emptying pensions under ‘small pot’ rules.

“We would urge those who are struggling financially to first check what benefits may be available to them and to use the free, impartial and independent guidance offered by Pension Wise to ensure they understand all the potential consequences of accessing pensions before retirement.”